6 ways to reward employees tax efficiently

Rewarding employees for a job well done is a great way to engender loyalty and retain key employees, at the same time as boosting morale amongst your workforce.

The big question is always how can it be done tax efficiently, so the maximum reward reaches the employee?

The good news is that there are plenty of ways you can do it – here are 6 ways to reward employees tax efficiently:

  Trivial benefits

Non cash items worth up to £50 can be awarded to employees tax free, and there is no limit on the number of items that can be awarded in a tax year, except for directors or their close family where there is a limit of £300 per year.  Vouchers (e.g. John Lewis vouchers) can be included here, but you do need to meet certain conditions for this to qualify as a tax free trivial benefit.
  Pension contributions

This works particularly well for older employees who may soon be able to draw down on their pension.
   Long service rewards

For employees with over 20 years' service, non-cash awards worth up to £50 per year of service are exempt.

Share schemes

There are a number of company share schemes that are tax efficient that can suit in various situations.   

Dividends

If employees are awarded shares in the employing company, potentially (subject to it being a reasonable return on the shares) they can receive up to the £5,000 Dividend Allowance tax free.   

  Car benefitThere are many options for more tax efficient vehicles - vans or pickups with a 1 tonne payload qualify as commercial vehicles, and hybrid cars are very low emissions and often qualify for a 100% first year allowance for the company.  You can look at some low emission company car options here.

Please note – This report is provided for information only.    No action should be taken without consulting detailed legislation or seeking independent professional advice.   Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted.